The absent defendant: arbitration vs. court

by Ted Frank on June 10, 2008

At Bizarro-Overlawyered, Justinian Lane states:

Ted Frank at Overlawyered falsely claims that “In civil court, a default judgment can be obtained merely on a plaintiff’s say so. In contrast, most arbitration agreements require the arbitrator to scrutinize the evidence before granting an award, even when the debtor does not contest the arbitration claim…” A default judgment against a debtor will be based upon the same evidence in civil court or in arbitration: an affidavit or affidavits from the creditor alleging that the debtor owes a specific sum. Both the judge and the arbitrator will “scrutinize” the affidavit in the same way; they’ll check to make sure names and sums are correct.

It will be no surprise to long-time readers of Overlawyered that Justinian Lane is 100% incorrect.

A defendant who fails to appear in court defaults. As FRCP 55(b)(1) states (emphasis added):

If the plaintiff’s claim is for a sum certain or a sum that can be made certain by computation, the clerk — on the plaintiff’s request, with an affidavit showing the amount due — must enter judgment for that amount and costs against a defendant who has been defaulted for not appearing and who is neither a minor nor an incompetent person.

The allegations in the complaint are assumed to be true, and judgment is granted for the plaintiff-creditor without further ado so long as the boilerplate is legally sufficient, regardless of the merits of the defendant’s case or the meritlessness of the plaintiff’s case. In contrast, here is Rule 36 of the National Arbitration Forum Code of Procedure, which is typical of arbitration procedure:

RULE 36. Arbitration Proceedings in Absence of a Party.

A. An Arbitrator may issue an Award or Order when any Party has failed to respond, appear, or proceed at a Hearing, or otherwise defend as provided in this Code.

B. If a Party does not respond to a Claim, an Arbitrator will timely review the merits of the Claim for purposes of issuing an Award or Order. The Claimant need not submit an additional Request for an Award.

C. An Arbitrator may require an Affidavit, information or Documents from Parties who have appeared or conduct a Hearing to Receive evidence necessary to issue an Award or Order. Documents submitted in Response to an Arbitrator’s Request shall be filed with the Forum no later than thirty (30) days after the date of the Request. A Party may obtain forty-five (45) additional days to respond to an Arbitrator’s Request by filing with the Forum and Delivering to all other Parties an extension notice before the initial thirty (30) day time period expires. Only one (1) extension by notice is available.

D. Each Party making an Appearance shall be provided notices relating to a Hearing.

E. No Award or Order shall be issued against a Party solely because that Party failed to respond, appear or defend.

Creditors in arbitration have no default rights. If they can’t prove their case, they get nothing. Arbitration gives debtors rights that they would not have in court. Justinian’s claim that defaults in arbitration are just like defaults in court is simply wrong. My claim is true, and it is Justinian’s claim that is false.

Little surprise that the litigation lobby’s arguments for depriving consumers of the choice to pre-commit to arbitrating disputes are so thin that they have to make up facts.

(Justinian’s post also repeats the canard that because the anti-arbitration bills only ban mandatory arbitration, consumers haven’t lost any choice because they can still arbitrate if they like. Of course, we’ve repeatedly demonstrated why pre-commitments to arbitration are necessary for honest consumers to realize the maximum benefits from arbitration, and Justinian’s failure to acknowledge that argument, as well as his failure to account for the refutation of the Business Week story, further demonstrate the bad faith of the litigation lobby’s campaign against consumer choice.)


1 Mahlon 06.10.08 at 3:48 pm

Ted: Unfortunately, you are both partially right and both partially wrong.

In a court case, if a defendant fails to respond to the Complaint, the court may grant a default judgment. The court may also order a hearing on damages if it wishes. It is not automatic. In fact, A couple of years ago I was teaching a course to judges through the Ohio Judicial College and the topic of debt-buyers – and in particular those fishing for default judgments – came up. Uniformly, the judges disliked signing those default judgment judgments. Many said – and I can vouch that the practice is spreading – that they were setting cases for damages hearings in order to see some evidence. Also, keep in mind that on most collection cases, under the civil rules, the creditor must attach to the Complaint documents which support the claim: a contract, a statement of account, etc. So the Court will have some documentation as to the validity of the debt.

Your quoted language from the NAF procedures is interesting. Although you highlight subsection E, you fail to note that that provision directly conflicts with subsection A. But that is a minor point.

Please do not think, or try to convince anyone, that the arbitrators are poring over evidence when a debtor fails to show for a hearing. The procedure is every bit as cursory as you allege default judgments to be. And I do not submit that it should be otherwise. If someone is too damned lazy to speak up, why should I or an arbitrator or judge care? Don’t think for a minute, however, that the creditor is subjected to excruciating examination by the arbitrator when the debtor doesn’t show. It doesn’t happen.

There is one major point which you omit. If a debtor has a basis under law, he can ask a court to set aside a default judgment. This may be for a number of reasons, such as failure of service of process or misconduct by the collection attorney. I have not looked at NAF’s rules on setting aside an award, but given the binding effect of awards, I would be surprised if such rules exist. This is an important right and guards against error, the innocent and not so innocent.

2 Ted Frank 06.10.08 at 3:57 pm

Mahlon: in federal court, a default judgment on an amount certain is non-discretionary. And nothing about Rule 36(A) conflicts with Rule 36(E): Rule 36(A) permits the arbitrator to rule against a non-appearing party; Rule 36(E) forbids the arbitrator to rule against a non-appearing party because the party did not appear.

The judges in your Ohio cases do not appear to be following the law, which only permit a hearing when it is “necessary,” but that’s hardly an argument against arbitration, rather than another explanation why the Ohio economy is so poor.

3 Mahlon 06.10.08 at 4:47 pm

Ted: Thank you, but I am sure both my reading and my understanding is rather better then yours.

First, consumer collection cases are almost never brought in federal court. Therefore your citation to the federal rule is not wise. But I’ll revisit that in a moment.

Rule 36(A) states quite clearly that an arbitrator may grant award “WHEN ANY PARTY HAS FAILED TO RESPOND.” This is a default award. I’ll accept your interpretation, naive though I think it is, that the rule requires that the arbitrator look at some papers. before granting an award. As I previously stated, that is also how court cases work. The papers must be filed with the Complaint and may form the basis for judgment. There is little difference between the two systems in this regard.

You accuse Ohio courts of not following the law. Well, let’s look at the law, without the Frank filter applied to it. The Ohio rule to which you seem to refer states:

“If, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or to make an investigation of any other matter, the court may conduct such hearings or order such references as it deems necessary and proper and shall when applicable accord a right of trial by jury to the parties”

Ohio Rule of Civil Procedure 55(A).

This grants the Court rather broad latitude in holding these hearings. That is the law. This law is very similar to that of virtually every other state in the country. Further, your belief notwithstanding, this language follows the federal rule verbatim.

Now, I’ve obviously mistaken this cite for one at which thoughtful comments can be exchanged. If you have read my comments, you can see that I do not disagree with everything you say. Nor do I throw up positions which are without reasoned support. Unfortunately, it is clear, Ted, that you cannot countenance anyone who does not agree with everything you say. You are becoming too knee-jerk in your responses. With that, you lose credibility.

Finally, you’re wrong, Ted. The courts’ failure to grant every default judgment application submitted is not the reason Ohio has a poor economy. There are many other reasons for that problem.

4 Ted Frank 06.10.08 at 7:04 pm

Mahlon, you know perfectly well that the vast majority of state rules stem from or duplicate the federal rules. Indeed, as you note, Ohio Rule 55(a) duplicates language of the old FRCP 55(b)(2).

I suggest my reading of Rule 55(a) is more natural than yours or the Ohio courts’, as your preferred reading requires one to believe that the first forty-nine words of the rule have no meaning.

Indeed, if one looks at the new FRCP 55(b)(2), one sees that it is consistent with my reading, and not yours — even though the rewrite of the federal rules was not supposed to change any substance of the rules.

Similarly, it is possible for an arbitrator to simultaneously comply with Rule 36(A) and Rule 36(E), as is readily apparent if one draws the Venn Diagram from those two rules. Until you show a scenario where an arbitrator must violate one of those rules to comply with the other, there’s nothing contradictory about them, and your repetition of the rule shows misunderstanding of what “may” means.

I’m entitled to defend myself when you incorrectly call me wrong. I’ve fully admitted error when I’ve made it, but this isn’t one of those times.

5 Woodruff 06.10.08 at 9:20 pm

It appears that Rule 36 section “A” and section “E” are in conflict. How has this been resolved?

6 Mahlon 06.10.08 at 9:32 pm

I’ll be sure to tell all the judges I run into that Ted Frank’s interpretation trumps theirs. I’m sure they will all be in awe.

7 Deoxy 06.11.08 at 11:30 am


A and E are not in conflict. Example:

EvilCrideitCorp falsifies claim against poor innoncent Bob (this is an oversimplified version of what we’re worried about, right? Consumers being screwed by the collectors?). Bob is in a coma right now, so he won’t be coming to any hearings of any kind.

If ECC comes before a judge, since Bob isn’t there, he defaults – ECC gets a judgement against him. Now, Bob could still get it reversed later by going to court, etc, but the hurdle to get a judgement against someone who isn’t there in court is EXCEEDINGLY low, and getting the judgement reversed will cost time and money for Bob… and if the judgement is low enough, well, Bob is better off simply to pay it (in immediate financial terms, anyway).

If ECC comes before an arbitrator, part A allows the arbitrator to pass judgement against Bob without Bob being there (just as a court can), but part E tells the arbitrator that Bob being missing doesn’t automatically make Bob lose, as it would in court. That means the arbitrator can look at the supposed debt, determine that it’s a bunch of crap, and throw it out, even though Bob is not there.

8 Justinian Lane 06.11.08 at 11:42 am

Deoxy, I clarify how defaults work in Federal court in the comments thread on TortDeform. In a nutshell, getting a default in Federal court isn’t automatic. The plaintiff has to request it, and for a sum certain, the plaintiff must include an affidavit. Contrast with arbitration in which the arbitrator must grant a default on its own if the defendant doesn’t show in a timely manner. I quote from a case that gives a very concise explanation of the procedure.

Also, getting a default judgment reversed isn’t too terribly difficult in court, as court’s prefer to adjudicate on the merits. I’m not sure how difficult it is to get an arbitrator to revisit a default.

9 V 06.21.08 at 12:55 am

I fought an arbitration claim on my own.
It took 9 months, but could have been resolved by 1 day in court.
9 months of fear, agony and stress and time spent after work reading the Code over and over again and writing and faxing documents. I do not have any legal training or education except for 1 business law class 15 years ago. Just a working stiff trying to protect my own rights and couldn’t afford an attorney. This is my opinion and experience and I am not a professional anything.
If anyone has tried to interpret and apply the mixed up Code of Procedures of the NAF you would understand why Arbitration awards for Collectors are given out like candy at the Forum. A lay-person does not even know what to request, what legal terms to use other than Objection and Request for Dismissal. Almost every request I made was denied because of some rule relating to another rule and either timing, because by the time I thought I could apply a rule it was either too late or another rule countered my request. And when they say a document was received, then why isn’t action taken.
I spent 9 months, yes 9 months to fight an Arbitration claim I objected too. The collector was putting information in my file and not sending it to me which I discovered when I requested a copy of my file, which became a monthly tradition. I thought this was a violation of the code but it didn’t seem to matter when I brought it up.
And then you’re dealing with Case Coordinators who mis-apply the rules and don’t even understand them themselves.
The collector did not provide discovery as I requested (too burdensome). The Arbitrator then requested they provide discovery documents, they didn’t timely, and then they got an extension. All the time, I’m objecting to the extension because the signed claim said they had documented proof, and I requested dismissal because of this and other reasons. It didn’t seem to matter that they could not produce documents they said they had and based their claim on, because my requests for dismissal were never answered. Then I requested 14 days under the US Code Collection to review any info they might provide and the Coordinator did not know how to deal with it. She gave me a 30 day extension which in turn would give the collector another 30 days. I objected and told her I did not request an extension, just the time allotted by Federal law to review the discovery documents. She didn’t have a clue what I was talking about. So I had to object to the extension, and they reversed it.
The Code of Procedure doesn’t work with the Federal Laws, and Violations of the FDCPA mean nothing in Arbitration. Finally after over 200 pages of documented objections and repeated requests for dismissal and for the Arbitrator to apply the Rules of the Code to the Collector too, 3 Assignee name changes by the Collector’s attorney, a third party violation, and over 9 months of Objection to the Arbitration, Requests for Dismissal and the failure of the Collector to provide discovery I prevailed because the collector requested dismissal, probably in part because I would not give up and they had contacted a third party, a violation of Federal Law. And for the NAF to make confidentiality a Rule that both parties need to agree to, I feel I have every right to do with my documents what I please, as I objected to the arbitration and was forced into defending myself using their forum, and I never agreed to abide by the Code of Procedure.
One day in court would have solved it because they waited over 90- days between the time they filed and served which a violation of the Code of Procedure, but you have to respond (RULE 36A, then B & E) to the Forum that you received the claim OR you would lose by default, and then try to interpret the “Rules of the Code of Procedure” to object to the claim being Arbitrated in accordance with the Code, and state that rule in the objection or request. It seemed that the violation by the collector was ignored, as it should have been dismissed right then, and I still do not understand why it was not, and it went on and on with them proceeding with their claim.
Simple as that… It could have been 1 court date vs 9 months at the NAF House of Terror.

Was I in arbitration, by being forced into defending myself for nine months when I objected to the arbitration of the claim in the first place? What else would you call it? When I sent off my first objection and request for dismissal was I in arbitration at that point even though I was objecting to the arbitration of the claim?
Why are there not any documents published (or where are they) with the “how to’s” or examples of what to say on documents to file to help people who are forced into Arbitration?
I read the NAF’s own website to find out most of my information about case decisions, but there is nothing clear about their procedures. To sit and wait for a decision that won’t be made for six months, provided there are no extensions, because you don’t know the status of your objections or requests for dismissals is nerve-wrecking, and all the time your gut is telling you “you don’t have a chance against these guys”.

10 Ted Frank 06.21.08 at 1:25 am

The anonymous commenter (who did agree to an arbitration, or he would not have been in one) appears to be complaining about an arbitration he won, which gives lie to the Public Citizen claim that consumers can’t win arbitrations or NAF arbitrations. If V thinks that that would have been an easier task in court, and that courts don’t have arcane procedural rules and counter-motions and strangely titled papers he’s sadly mistaken. (Too, courts would be considerably less patient about mistitled documents and word soup. I have no idea what V is talking about with the “14 days under US Code Collection to review discovery documents.”) As noted above, V misstates the default rules for arbitration. And if V’s complaint is the waiting, that is endemic to all litigation, and is shorter in the case of an arbitration. I have a motion pending in court now, granted two extensions to the other side, and they responded with a pack of lies, and now I have to wait and see if the judge will see through it. That’s litigation.

Separately, it will be no surprise to regular readers of Overlawyered that Justinian misstates federal law, even though the portion that makes the entry of default judgment mandatory is bolded in the original post. One is impressed with the brazenness with which Justinian persists in plainly false claims on a page where the counterevidence is right in front of him, but impressed with little else. Default judgments are nowhere near as easy to undo in court as Justinian claims; only a tiny fraction of default judgments are set aside, and it’s usually such a man-bites-dog event that courts issue detailed opinions explaining why an exception to the general rule is made.

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